In the industry-specific section of our 2014 Predictions for the current year, (full research report available for complimentary downloading in our Research Center) we specifically addressed consumer product goods supply chains where combinations of external forces are providing unique challenges. That force includes contraction of growth rates and margins from previously expanding emerging markets, a certain group of activist investors demanding more cash value, and now, increases in key commodity costs.

Some CPG supply chains are rising to the task while many continue to deal with challenges on multiple fronts.

Global CPG giants such as Nestle and Unilever have managed to meet investor quarterly earnings expectations yet continue to report growth headwinds concerning emerging markets along with currency challenges. The CEO of Unilever recently told business network CNBC that emerging markets use to be in the range of 6 to 8 percent but now range 5 to 6 percent. Nestle’s organic growth targets of between 5 to 6 percent are currently trending at 4.6 percent.  Unilever currently garners 60 percent of its revenues from China, India and other emerging consumer markets. Mondelez International reported its fiscal fourth quarter earnings this week and reported that organic sales rose declined 6.1 percent in the Asia-pacific region while revenues specifically in China declined by the mid-teens. Supply Chain Matters featured a previous commentary regarding the Kellogg Company.

Noted exceptions of late have been Procter & Gamble and Kimberly-Clark. P&G recently reported that demand for its products in emerging markets such as Brazil and China remains strong. However, P&G reported a 16 percent drop in profits largely due to unfavorable exchange rates. Kimberly-Clark reported that its emerging market business continues to grow strongly. Today, Campbell Soup indicated a solid quarterly performance including growth in certain emerging markets.

The U.S. market further presents its own challenges as economically distressed consumers continue to opt for price-sensitive products in their purchases. Today’s edition of the Wall Street Journal reports that many European based consumer goods companies had relied on sales in Brazil, China, Mexico and other Asian countries to maintain revenue and profitability momentum while developed markets remained sluggish.  We would add that these same companies made significant investments in supply chain fulfillment networks in these regions as well.

On the activist investor front, PepsiCo indicated this week that it continue to focus on expanding its soft-drink product revenues instead of taking actions to split-up the company, which certain activist investors are demanding.  To continue its course, the company indicated it was investing $8.7 billion in stock buybacks, increasing its cash dividends by 35 percent in the current year, and will initiate $1 billion in productivity gains, including job cuts, through 2019.

There is now the additional challenge of increased commodity costs.  On the occasion of Valentine’s Day here in the United States, the Wall Street Journal featured a report that growing demand for chocolate products, particularly from emerging consumer markets, has driven commodity prices for cocoa up 9 percent this year, to levels not reached since 2011. Once more, an industry trade group boasts that demand will outstrip limited supply for the next five years, the longest shortfall since 1960. This week, U.S. cocoa futures hovered in the high $2900 a ton range, a 29 month high. The implication is that with these current signposts, chocolate makers such as Hershey Foods, Mars, Mondelez, Nestle and others will face decisions for raising prices, adding more pressure to existing product demand and profitability trends.

Indeed, consumer product goods industry supply chains have extraordinary challenges to overcome.   Supporting emerging market growth objectives requires laser-focused investments in channel customer fulfillment and distribution capabilities.  Companies such as P&G provide evidence that such a laser focus can provide benefits and continued growth.

Continued relentless pressures for continued productivity and cost reductions are impacting the marrow of people resources, and further require out-of-box thinking. A dependence on past efforts at continuous improvement or past industry productivity benchmarks will not help in the current environment.  With added challenges for increased input materials costs for certain key commodities, the challenges become ever more dynamic.

In 2014, CPG supply chains will require bold leadership and innovative thinking.  Business-as-usual has long passed, and so has continuous improvement mentalities.  Integrated supply chain management, more timely and responsive decision-making and the laser-like investments in productivity and cost management loom large.

We certainly encourage our readers residing in consumer goods supply chains to share learning from the current environment in the Comments section below.

Bob Ferrari

© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.

Disclosure: The author of this posting has a modest holding in Unilever stock.